Q3 2025 Blackstone Secured Lending Fund Earnings Call

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Thank you for sharing buying are on hold for the Blackstone secured lending third quarter 2025 of the Investor call. At this time, we're gathering additional participants and should be underway. Shortly we appreciate your patience and ask that you continue to hold.

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Operator: Please stand by. The conference will begin shortly. Please stand by. The conference will begin shortly.

Speaker #2: Good day, and welcome to the Blackstone Secured Lending third quarter 2025 investor call. Today's call is being recorded. At this time, all participants are in a listen-only mode.

Speaker #2: If you require operator assistance, please press star zero. If you'd like to ask a question, please signal by pressing star one. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Speaker #2: At this time, I'd like to turn the conference over to Stacy Wang, head of stakeholder relations. Please go ahead.

Speaker #3: Thank you, Katie. Good morning, and welcome to Blackstone Secured Lending Fund's third quarter conference call. Joining me today are Brad Marshall, Q2 executive officer; Jonathan Bock, Q2 executive officer; Carlos Whitaker, president; Teddy Desloge, chief financial officer; and other members of the management team.

Speaker #3: Earlier today, we issued a press release with presentation of our results and filed our 10Q, both of which are available on the shareholder resources section of our website, www.bxsl.com.

Speaker #3: We will be referring to that presentation throughout today's call. I'd like to remind you that this call may include forward-looking statements, which are uncertain outside of the firm's control and may differ materially from actual results.

Speaker #3: We do not undertake any duty to update these statements for some of the risks that could affect results. Please see the risk factor section of our Form 10-Q filed earlier today.

Speaker #3: This audio cast is copyright material Blackstone and may not be duplicated without consent. With that, I'll turn the call over to Brad Marshall.

Speaker #4: Great. Thank you, Stacy, and thanks for joining our third quarter earnings call. I will begin with some thoughts on the current environment and our views heading into year-end.

[Company Representative] (Blackstone): Brands remaining attractive when compared to traditional fixed incomes, and credit quality remaining fairly steady across the portfolio. Turning to slide four to highlight this, the excess out reported another strong quarter with our net investment income, or NAI, of $0.82 per share, representing a 12% annualized return on equity, made up overwhelmingly of interest income rather than income from TIC, or dividends, or fees. We believe the quality of BXSL's income has historically created a robust income stream for our investors. NAV per share decreased by $0.18 quarter over quarter to $27.15 due to markdowns that Teddy will discuss shortly. Our distribution of $0.77 per share was 106% covered by our net investment income per share, and represents an 11.3% annualized distribution yield, one of the highest among those of our traded BDC peers with similar levels of first-line senior secured assets.

Speaker #4: Last quarter, we addressed the positive trends reemerging with markets opening back up, equities hitting all-time highs, and inflation staying muted. Now, we believe we can keep capitalizing on a few key themes that may continue to yield returns for our investors.

Speaker #4: Firstly, deal activity has continued to accelerate. Which is consistent with what we have seen in past periods when cost of capital starts to come down in valuations improve.

Speaker #4: In part, as a result of increased deal activity, leverage in BXSL ended at 1.22 times after averaging close to 1.15 times for the quarter.

Please standby the conference will begin shortly.

[music] brands remaining attractive when compared to traditional fixed income.

Speaker #4: Secondly, despite falling base rates during the quarter, we saw new deals at an average spread of 544 basis points over the base rate, inclusive of amortization of OID to maturity.

And credit quality remaining fairly steady across the portfolio.

Turning to slide four.

Speaker #4: And total fundings during the quarter averaged 556 basis points above the base rate, the majority of which were first liened. Lastly, overall, we saw stable underlying fundamentals and growth in our portfolio, with the majority of the assets flat or marked higher in the quarter.

I like this the extra salary reported another strong quarter with our net investment income or NII of <unk> 82 per share representing a 12% annualized return on equity.

[Company Representative] (Blackstone): Finally, as mentioned earlier, we believe credit quality remains strong, 0.1% of investments are non-accrual at both cost and fair market value. We had no new names added to the non-accrual list this quarter. Moving to slide five, we've continued to prepare ourselves for what we believe may be a period of heightened deal activity, focusing both on our existing portfolio companies and new assets. Despite lower base rates, private credit premium relative to leveraged loans in the liquid market has endured. We collaborate with teams across the firm to identify new opportunities and key investment trends. Right now, we believe we are in a re-industrialization with AI that will require significant ongoing insights and capital solutions. You will hear from Carlos on this later. We integrate AI considerations into our disciplined investment process, searching for larger businesses, mission-critical products, high recurring revenue, and senior secured positions.

Made up overwhelmingly of interest income rather than income from tech or dividends or fees.

Speaker #4: Non-accruals dropped to 0.1% at cost, remaining the lowest among our traded BDC peers. Despite all these positive trends, there have been external narratives around bubbles and rising defaults across the credit markets.

We believe the quality of Bx ourselves income has historically created a robust income stream for our investors.

And maybe your per share decreased by 18.

Quarter over quarter to $27 15.

Due to markdowns that Teddy will discuss shortly.

Speaker #4: What we are seeing on the ground and across over 300 credits, we are invested in, is in direct contrast. Firstly, as mentioned earlier, M&A activity is picking up.

Our distribution of <unk> 77 per share was 106% covered by our net investment income per share and represents an 11, 3% annualized distribution yield one of the highest among those of our traded BDC peers with similar levels of first lien senior secured assets.

Speaker #4: In fact, as of the third quarter, it is up 63% year over year, consistent with what we discussed with all of you regarding our expectations at the start of the year.

Finally, as mentioned earlier, we believe credit quality remains strong 0.1% investments on nonaccrual at both cost and fair market value we.

Speaker #4: And with more companies choosing to fund this M&A with private capital, this has helped our ongoing growth. Further, there is about five times more dry powder in North American private equity vehicles than in private credit origination dry powder, representing a healthy potential backlog of demand for private credit solutions.

We had no new names added to the nonaccrual list this quarter.

Moving to slide five.

We've continued to prepare ourselves for what we believe may be a period of heightened deal activity focusing both on our existing portfolio companies and new assets.

[Company Representative] (Blackstone): We believe we are well-resourced to understand and underwrite the fast-paced change that AI is driving, and the impact this will have on companies and investments. We saw a 20% increase in new BXCI global private deal screenings this past quarter versus the third quarter of last year. While not every BXCI deal that comes through BXCI screening is suitable for investments by BXSL, this is consistent with our general view from last year that deal activity would pick up meaningfully throughout 2025. Deployment for the quarter surpassed $1 billion and was up 90% compared to the second.

Speaker #4: As it relates to defaults, and in particular first brands and Tricolor, I think it is reasonably well established now that these were, in fact, not private credit transactions.

Lower base rates.

I have a credit premium relative to leveraged loans in the liquid market has endured.

Speaker #4: They were bank originated, bank underwritten, and bank distributed deals. However, it's worth noting two things. One, defaults are, in fact, declining in the leveraged loan and high-yield market, down 37% year-to-date this year from 2023 and 24% from 2024.

We collaborate with teams across the firm to identify new opportunities and key investment trends.

Right now we believe we are at in at Reindustrialization with AI that will require significant ongoing insights and capital solutions.

You will hear from Carlos on this later, but we integrate AI considerations into our disciplined investment process searching for larger businesses.

Speaker #4: Demonstrating that despite well-publicized defaults, the default trends in the indices have improved. Second, defaults do occur from time to time across both the public and private markets.

Mission critical products high recurring revenue and senior secured position.

Speaker #4: Knowing this, we have continued to feel very confident in our approach to investing by focusing on first lien senior secured loans with large sponsor-backed companies across sectors we believe have good long-term tailwinds.

We believe we are well resourced to understand and underwrite the fast paced change that AI is driving and the impact this will have on companies and investors.

We saw 20% increase in new <unk> global private deals screenings, this past quarter versus the third quarter of last year.

Speaker #4: In our view, these companies are better able to navigate market changes, inclusive of the fast pace of change driven by AI. These companies are generally more strategic because of their scale.

Not every <unk> ideal that comes through <unk> screening is suitable for investments by the excess al. This is consistent with our general view from last year that deal activity would pick up meaningfully throughout 2025.

Speaker #4: These companies tend to attract and maintain high-quality management teams and ownership groups. Our experience is supportive of this thesis. In direct lending, BXCI has experienced annualized realized losses of only one-tenth of 1%, including to the global financial crisis.

<unk> deployment for the quarter surpassed $1 billion and was up 90% compared to the second.

Speaker #4: Being part of Blackstone allows us to navigate and leverage the full bandwidth of the firm to maximize value in the event of default, which is something we are quite proud of.

Speaker #4: So, as we put all of that together, and what we view going forward, we expect to see deal activity staying active, asset turnover picking up, spreads remaining attractive when compared to traditional fixed incomes, and credit quality remaining fairly steady across the portfolio.

Speaker #4: Turning to slide four to highlight this, BXSL reported another strong quarter with our net investment income (NII) of $0.82 per share, representing a 12% annualized return on equity.

Speaker #4: Made up overwhelmingly of interest income rather than income from tick, dividends, or fees. We believe the quality of BXSL's income has historically created a robust income stream for our investors.

Speaker #4: NAV per share decreased by 18 cents quarter over quarter to $27.15 due to markdowns that Teddy Desloge will discuss shortly. Our distribution of 77 cents per share was 106% covered by our net investment income per share and represents an 11.3% annualized distribution yield, one of the highest among those of our traded BDC peers with similar levels of first lien senior secured assets.

Speaker #4: Finally, as mentioned earlier, we believe credit quality remains strong. 0.1% of investments on non-accrual at both cost and fair market value. We had no new names added to the non-accrual list this quarter.

Speaker #4: Moving to slide five, we've continued to prepare ourselves for what we believe may be a period of heightened deal activity, focusing both on our existing portfolio companies and new assets.

Speaker #4: And despite lower base rates, private credit premium relative to leveraged loans in the liquid market has endured. We collaborate with teams across the firm to identify new opportunities and key investment trends.

Speaker #4: And right now, we believe we are in a re-industrialization with AI that will require significant ongoing insights and capital solutions. You will hear from Carlos on this later.

Speaker #4: But we integrate AI considerations into our disciplined investment process, searching for larger businesses, mission-critical products, high recurring revenue, and senior secured positions. We believe we are well-resourced to understand and underwrite the fast pace of change that AI is driving and the impact this will have on companies and investments.

Speaker #4: We saw a 20% increase in new BXCI global private deal screenings this past quarter, versus the third quarter of last year. And while not every BXCI deal that comes through BXCI's screening is suitable for investments by BXSL, this is consistent with our general view from last year that deal activity would pick up meaningfully throughout 2025.

Speaker #4: Deployment for the quarter surpassed a billion dollars, and was up 90% compared to the second quarter. We believe the drivers of this growth are both more macro clarity for the US economy and lower base rates.

Speaker #4: We seek to continue our disciplined approach and use our cost advantage to focus on quality borrowers, not reach for risk, and deliver returns for our shareholders.

Speaker #4: With that, I will pass it over to my colleague, Jonathan.

Speaker #2: Thank you, Brad. Let's turn to slide six. We ended the quarter with 13.8 billion dollars of investments at fair value over a 15% increase year over year from 12 billion dollars.

Speaker #2: In three Q alone, BXSL also added 22 new borrowers to our portfolio, by exiting six positions, netting a total of 311 companies. Ending leverage and average leverage ticked up compared to prior quarter at 1.22 times and 1.15 times, respectively, remaining in our target range between 1 to 1.25 times.

Speaker #2: Our weighted average yield on performing debt investments at fair value was 10% this quarter, down from 10.2% last quarter. The yields on new debt investment fundings and assets sold and repaid during the quarter averaged 9.3 and 9.9%, respectively.

Speaker #2: I turn to slide seven. Nearly 98% of BXSL investments are in first lien senior secured loans, and nearly 99% of those are to companies owned by financial sponsors that generally have significant equity value in these capital structures.

Further, we believe dispersion among managers continues to be evident. You can see this by looking at various portfolio metrics compared to the weighted average of our traded BDC peers into Q3. Our non-accrual rates of 0.1% compare favorably to 2.9% for peers. Our pick as a percentage of total investment income is 8.2%, compared to 11.3% for peers, and our stressed debt investments marked below 80% of cost are approximately 0.9%, compared to 4.1% for the peer average. Now, I can conclude with some points on our documents in recent amendment activity. And as a reminder, when we negotiate our credit agreements, especially as a leading lender, we place a significant focus on control and important document protections, and we've remained consistent in this approach. If you take a look at our recent amendments, Q3 was largely similar to Q2 activity, with the majority of amendments associated with.

Add-on to M&A DDTL, extensions and new material, technical matters, or slight changes to terms. And with that,

I'll turn it over to my colleague, Carlos.

Thanks, John turning to slide nine <unk> maintained its dividend distribution of <unk> 77 per share as we remain focused on delivering high quality yield to shareholders. We continue to believe <unk> sales portfolio strength is owed to the scale and platform of Blackstone and <unk> and we have.

Use this to our advantage as we have expanded our book.

Take for instance, our view on AI.

Blackstone made an early call on the importance of AI and we believe <unk> hesitate at the forefront of adapting this into our portfolio.

We consider AI as we evaluate investments and use Blackstone resources, including Bx technology investments.

<unk> operating team.

<unk> data science to help evaluate AI related opportunities and support portfolio companies and adapting to change and while <unk> has a larger concentration of software than other industries are AI lands expands to our investments in the health care technology healthcare.

Services professional services business services and insurance.

And the current landscape there are AI verticals that we believe have definitive headwinds that investors should be mindful of we believe that in most instances larger companies may be better position to defend and leverage AI.

We also believe that there are a tailwind that may impact secondary beneficiaries of AI technology expansion, such as cyber security and data infrastructure and management, but it is worth noting we aim to avoid verticals that we believe may be at higher risk of disruption such as low <unk>.

<unk> outsourced services or business is centered around content creation, such as AD tech or AD Tech.

Of which <unk> has mid single digit percentage exposure and its portfolio. In addition, we try to avoid industries that are more cyclical in nature if.

If we just look at <unk> software portfolio.

Our investments average over $4 billion in enterprise value and are well capitalized with significant equity cushion. These companies are growing EBITDA annually at what we believe are healthy levels with weighted average interest coverage ratios nearer to terex.

These numbers do not come by accident.

Blackstone aims to identify trends and related downstream investments early before they become mainstream.

While we work to expand the portfolio through new borrowers. We have remained active with existing companies that we believe are quality assets. We saw deal activity pick up across the private credit landscape and to Brad's point, we were active on the deployment front.

Q3 marked our most active quarter in 2025 from a funding perspective with net deployment up 65% and gross deployment up 90% quarter over quarter.

We believe much of this was driven by the <unk> access to incumbent borrowers across our 5100 <unk> issuers globally.

Just this quarter nearly two thirds of <unk> fundings were to repeat borrowers of Bx CR.

In fact, we have sole or lead roles and nearly three fourths of our debt investment fundings for the quarter and the majority of those were sourced from our liquids business advisor networks, and our long standing relationships.

Certain sponsors prefer to work with <unk> when their portfolio companies need capital due to what we believe is a largely differentiated credit franchise and our market <unk>.

<unk> largest third quarter investment into a new portfolio company was our largest debt financing for our global specialty consulting firm, we were the sole lender into financing and provided the company committed capital to execute on future growth plans we.

We believe that owners like to partner with <unk> not just because of the scale solutions. We can provide but also because of the services. We can offer after the investments are value creation team was extremely active during the third quarter and had some impactful wins with improving earn.

<unk> for our portfolio companies just looking at the data available through the second quarter, the <unk> value creation program.

<unk> at no charge to participants or expense to Bx herself has created $5 billion.

And illustrative value and reduce cost by over $440 million for Bx VII portfolio companies since its inception.

We can differentiate ourselves is.

Not just a lender.

But as a value added partner, helping credits grow equity value through our bx Ci value creation program.

We believe we have developed a reputation for being a valued partner with the ability to provide speed creativity flexibility and certainty of execution and with that I'll turn it over to Ted.

Thank you Carlos.

I'll start with our operating results on slide 10 and the.

Third quarter <unk> net investment income was $189 million or <unk> 82 per share representing a 106% coverage to our dividend on a per share basis.

Total investment income for the quarter was up $14 million or four 7% year over year driven by increased interest income we.

We experienced increased repayment activity in the third quarter compared to the second quarter and with accelerating M&A and deal activity, Brian outlined earlier, we expect continued turnover activity and our portfolio throughout the upcoming quarters interest income excluding pick fees and dividends represented 91.

<unk> of our total investment income in the quarter.

Moving to our balance sheet on slide 11, we ended the quarter with over $13 8 billion total portfolio investments at fair value nearly seven 7 billion of outstanding debt and nearly $6 3 billion of total net assets.

<unk> per share at quarter end was $27 15.

Down from $27 33 in the second quarter.

NAV per share was supported by <unk> <unk> from share issuance from our ATM program at a premium to NAV.

Set by <unk> <unk> of realized losses, and 16th of unrealized losses in the portfolio primarily.

Concentrated to a small number of larger positions.

As we look at the portfolio overall, the majority of the portfolio was flat or marked higher during the third quarter with nearly an equal number of markups versus markdowns NAV per share was down 18 predominantly related to names previously highlighted.

And step back as Brad and John highlighted we saw healthy fundamentals across our portfolio with 9% EBITDA growth and increasing interest coverage ratio is back to two times as rate resets, our improving cash flow profiles of our borrowers.

Our non accruals of just 0.1% coupled with less than 1% of exposure valued below 80% are reflective of that.

Further we have over 120 individuals and our CIO office comprises of operational expertise financial and legal restructuring expertise data science expertise capital formation and more all dedicated to driving positive outcomes through our investment process and mitigating losses in the portfolio.

We are relentless in finding ways to add value to our companies and deploying unique resources that Blackstone can bring to bear.

Moving to slide 12, <unk> self funded over $1 billion in the quarter and committed nearly $1 3 billion net.

Net funded investment activity was up for the quarter at over $500 million with $433 million of repayments up nearly 150% quarter over quarter.

This represented an annualized repayment rate, 13% of the portfolio at fair value up from nearly 5% for the prior quarter.

Next slide 13 outlines our attractive and diverse liability profile, which includes 37% of drawn debt and unsecured bonds that are not swapped.

These unsecured bonds have a weighted average fixed coupon of less than 3%, which contributed to an overall weighted average all in cost of debt of 5.0% down from five 1% last quarter.

This also compares to a weighted average yield at fair value on our performing debt investments of 10% down from Q2 at 10, 2%.

The overall weighted average maturity on our funding facilities is three three years further we have continued to optimize our cost of capital in August we closed an amend and extend of our <unk> revolving credit facility, which eliminated the 10 basis point credit spread adjustment for extending loans.

And gave us the tightest price revolver among traded BDC peers based on our market research.

Further <unk> overall cost of debt of five 4% is one of the lowest compared to our traded BDC peers last quarter.

We continue to be prudent in taking advantage of historically tight spreads for BDC bonds in mid October we closed a $500 million bond priced at 155 basis points over the benchmark treasury rate or at a 512, 5% coupon with a five three year tenure.

This represented the tightest spread issue among our traded BDC peers since February.

Our balance sheet strength and portfolio performance has supported us in achieving among the highest ratings for bdcs with a <unk> and stable outlook by Moody's Triple B minus and positive outlook by S&P and Triple B flat and stable by Fitch in fact, Moodys completed its annual review of <unk>.

The end of the quarter, maintaining the <unk> stable rating, citing <unk> first lien senior secured focus strong asset quality since inception and sound underwriting.

Total liquidity was five was $2 5 billion of unrestricted cash and Undrawn debt available tomorrow, while ending leverage as of September 30 was one to two turns on the higher end of our target range of one to one and a quarter turns.

Moving forward, we expect to operate near the higher end of our range given what we believe is a period of heightened deal activity with.

With that I'll ask the operator to open it up for questions. Thank you.

Thank you as a reminder, please press star one to ask a question. We ask you limit yourself to one question and one follow up question to allow as many callers to join the queue as possible.

We will take our first question from Finian O'shea with Wells Fargo Securities.

Hey, everyone. Thanks, Good morning first question on square space.

I guess can you hit on why hang onto that there was a pretty small junior allocation it looks like the.

The main tranches plus.

$2 25 pretty.

Is that indicative of how low Youll go.

But otherwise should maybe more junior follow in a delayed draw or something like that thanks.

Yes, Tim Thanks for the question I'm happy to take that.

I wont speak to specific situations, but.

From time to time for a high quality company that has de Levered, we do have multiple options to retain exposure versus losing it to what would otherwise be.

Significantly tight tighter priced syndicated option.

That can include potentially using a first out in some cases, where we view it as appropriate.

Spread perspective, overall, which I think is where you're going with the question. We actually saw spreads on new deals marginally increased quarter over quarter I think we would characterize the environment over the last three to four quarters as relatively stable.

As Brad mentioned spreads on new deals overall, we're in the $5 25 contracts with three year.

OID amortized.

So relatively stable, we do have multiple tools in our toolbox.

Maybe said differently then.

We look at.

Spreads on a portfolio basis.

And there may be specific reasons, why individual assets, maybe structure a certain way.

But as <unk> highlighted.

The spreads for the quarter.

If you include the add ons and delayed draw fundings for.

In the mid 500.

Well I guess a follow up is what is.

Does it really matter if new spreads are in the mid five hundred's, if theyre going to be re price to $2 25.

Is that.

It's pretty tough math, that's inside of a lot of.

DSO.

So are we going to is this is the answer indicative of a lot more of this to come.

The answer is now.

Okay. I also think it's been from time to time you might see.

You might see a first out in our portfolio that then gets sold over time, but I think to Brad's point, you can't really take a.

One situation to draw broad portfolio conclusions overall spreads had been pretty flat over the last three to four quarters.

Okay.

I guess the follow up just market wide I think you hit on some of this in the remarks, there as well.

A lot of headlines out there that are.

Hard hitting.

On private credit.

Are you seeing any impact.

The non traded space.

Given your <unk>.

Major if not dominant presence there on the non traded BDC.

Any impact do you think the trajectory of flows on that.

Part of the market. Thanks.

So.

I'd say a couple of things.

<unk>.

As you know performance across the BDC market generally.

And more specifically blackstone's bdcs is actually being exceptionally good.

What you ultimately see in the BDC market has returns that are delivering a premium to what investors can get in the public markets.

The real driving kind of value.

The asset class.

What's interesting is that when rates fall.

The return premium that private credit delivers is actually more impactful and think about 2021. We saw this when rates were near zero you saw inflows from both institutional and individual investors actually grow despite.

The base rate environment, we're in.

Living through so.

The answer is there continues to be strong demand across all different types of investor basis.

For private credit.

Thanks, so much.

Thank you we will take our next question from Casey Alexander Compass point research and trading.

Yes. Good morning. Thank you for taking my questions. My first question is.

Obviously, there was a modest quarter over quarter markdown on medallion, just simply because of the size of the investment I think investors would like to hear where the company stands and we also noticed that.

The principal competitor is doing a large acquisition. So we wonder if in your view that as changing any of the competitive dynamic between the two companies.

Thanks, Casey, Yes, there's no real update from last quarter on medallion and we believe that it's mark.

Lately.

As the acquisition by Bellatrix will take some time to integrate but does not change the market backdrop.

And.

And so no no real change there.

Well I also noticed in your deck that your company revenues year over year up your company EBITDA year over year is up but also the.

Loan to value has skipped up a little bit higher.

Normally I would think that if revenues and EBITDA were up that might be actually coming down a little bit can you can you speak to that dynamic as it has something to do with loan to value on newly originated loans or.

What's the principal reason for that.

Yes, sure so loan to values on new deals for the quarter averaged about 45%.

As we noted is probably one of our busiest quarters in a long time.

Across the portfolio, you're right loan to value went from 47% to just under 50%.

It's a fairly marginal move and I think that's largely a product of <unk>.

Enterprise enterprise values getting adjusted marginally lower.

On existing names, which we think is largely of an equity consideration, it's like saying the average enterprise of our companies was something like $3 2 billion.

And and now its $3 billion, but most importantly, there is still a 1 billion and a half of equity subordinate to us.

And so as we think about it from a credit standpoint, you're focused on the right things companies are growing interest coverage is getting better 98% of the portfolios at the top of the capital structure. So nothing to read into anything there just marginal changes.

Alright, Thank you for taking my questions.

Thank you we'll take our next question from Doug Harter with UBS.

Thanks can you talk about the.

How are you viewing the outlook for the dividend.

As base rates come down and you have to refinance some more of your fixed fixed rate debt.

Sure Doug.

So maybe we'll just start with the quarter paid 77 dividend or approximately 82, so the payouts covered with room to spare but the portfolio is in great shape as Brett outlines that low non accruals and levered equity base, which Teddy referenced and importantly, an income right investment income that is high quality.

And most of all predictable approximately 90% come from cash interest. So it's not we're not not fee related.

Now about 99% of the portfolio is floating rate, which has been a big win with rates being high but when rates start to come down in the fed's expected to take something around 3% over the next year, we will see some impact on earnings now some peers have already adjusted their dividends and for US the plans to keep looking at the base dividend in light of where rates and earnings.

We are headed and still make sure it's Steve <unk>.

Competitive and sustainable now the good news is we have a cost and expense advantage over peers in our latest bond deal swaps at around $1 55 and over.

Outlines that in with more M&A activity expected, we see some opportunities as Bret outlined put some capital to work. So we're in a good spot to be thoughtful about any changes to the base dividend rather than just rush into them.

We're looking at it this quarter and the quarters going forward.

I appreciate that.

Just as you mentioned that there is increased M&A and turnover in the portfolio. How do you think about that impact.

On the realized yield to have a portfolio of turnover pixel.

Yes, Im happy to take that I think we've been messaging for some time that number one we expect activity to pick up you clearly saw that number two in line with that you would expect repayment activity to pick up as well you saw that to this quarter.

So.

If those trends persist we would expect.

<unk> trends that does.

That does represent a potential upside driver to returns versus what you saw.

And certainly the second quarter and previous quarters and lower repayment activity.

Yes, it probably has more of an immediate impact on earnings.

Just given the acceleration of OID the fees that we get from those refinancings.

And then if the rate environment or the yield environment, so a little bit lower.

Longer term yields will be.

No.

Tad lower on those new deals.

Thank you we'll take.

We'll take our next question from Kenneth Lee with RBC capital markets.

Hey, Thanks for taking my question.

First one is just about the.

The opportunities and you highlighted a couple of different things here.

Over the near term.

What sorts of opportunities.

Do you see potentially over the next coming quarters could this include for example debt financing of some of the infrastructure.

Whats appropriate for the vehicle here. Thanks.

Yeah. So obviously AI is both a risk and an opportunity.

We're spending a lot of time on the risk side understanding what sectors could be impacted.

We have I think we've talked about this before thousand technologists across Blackstone, So our insights into.

Areas of concern and risk are probably better positioned than most anyone in the industry. Your question was more on the opportunity side, and we think everything in and around the AI ecosystem.

Is looking.

Tractive.

Not from a application or technology standpoint, there is some we need to be cautious as a debt investor on where we want to invest but more in the infrastructure.

And and that includes equipment providers into data centers. So we just did a.

A big deal for <unk> to sell during the quarter called layer zero.

Which advent purchased we just announced the deal.

Last week stable power, which powers and other.

Tractive infrastructure play on on the AI.

And the AI ecosystem, so youll continue to see us.

Playing the picks and shovels around AI and drive.

More secure type investments in that space.

Great very helpful. There and then one follow up if I may more broadly are you seeing in terms of the quality of deals that you're seeing you've certainly seen a pickup in activity, but wondering how would you how would you assess the quality of the deals that you're seeing so far thanks.

Yes, I would say.

It's actually fairly good we're seeing what's driving a little bit of a pickup in M&A activity as I said in my opening remarks, you have a little bit more macro clarity.

You have a lower cost of capital and those two things are driving improved valuations and so buyers and sellers are coming a little bit closer together.

And typically when the M&A machine starts to pick up it leads with the higher quality assets.

And those are the types of deals that we're seeing as I just mentioned on the previous question average loan to value of about 45% so still.

Sub 50% when we started.

15 to 20 years ago average loan to values were around 65% so very good.

Backdrop from a capital structure standpoint, if you are investing at the top of the capital structure, which we continue to do and then I would say there are certain sectors that we think will be better performers.

Forward and those are the ones that we've invested in the past year and we will continue on a go forward basis for.

For our investors.

Great very helpful.

Thanks again.

Thank you we'll take our next question from Ethan Kaye with lucid capital markets.

Hey, good morning, guys. Thanks for taking my question here.

So you guys had strong commitment in net funding activity this quarter, which is great to see I guess first question is how much of this was kind of incumbent versus.

New borrowers and are you seeing a shift in these proportions.

Last quarter recent months here.

Yeah. Good question, Thanks <unk> bin.

So as we look at total activity in the quarter, which includes.

Listing portfolio companies that are accessing <unk> or doing add ons. In addition to new deals over 80% of activity was to incumbent borrowers and over 70% are actually close to 75% as Carlos mentioned.

Were solely.

So I don't I.

I wouldn't say, that's an and.

A different quarter than in previous that's kind of been consistent for a while it goes back to our broad broad coverage across the sub investment grade universe cover or invested as a platform over 5000 companies that's somewhat of a fertile hunting ground for us for new deals you saw that in the quarter.

And I would say just as a market backdrop, we're seeing about a 25% uptick in new <unk>. So going forward I think youll see.

A.

A decent percentage of new deals come through the portfolio.

And into next year.

Got it that's helpful and then I guess somewhat of a follow up so.

Given that leverage ticked up a bit at the high end of your range as you mentioned and given the kind of share issuance ability is a little bit more constrained these days.

Should we anticipate kind of the level of deployment to be largely driven by portfolio turnover do you think there is capacity to kind of maintain these elevated net funding levels.

Yeah. Good question. Thank you so well first first off going into a period of heightened activity.

Well capitalized right over two 5 billion of liquidity among the lowest cost of financing debt markets wide open we issued a 500 million bond at a 155 basis points spread over Treasury and you put that in context, that's about 50 basis points inside of where spreads were on bonds in 2021.

So to your point also seeing a pickup in repayment activity as the M&A market does pick up we expect to continue to see that and we will watch the equity markets closely and.

Only issue if we see that it's accretive to both NAV and earnings based on the opportunity set in front of us so.

So in the meantime feel we're in a very good position and do have some visibility to increasing repayments as previously mentioned the pickup in M&A activity and turnover are that are directly linked.

Surprisingly, so youll see both those happen at the same time.

Great I appreciate it thanks guys.

Yes.

Thank you as a reminder, star one if you would like to ask a question. We will go next to Robert Dodd with Raymond James.

Hi, guys.

I can go back to the LTV question quickly I mean, almost 50% I think that that's probably an all time high in this portfolio and its up almost 300 basis points since.

Since last quarter.

There is also there seems to be a good attention and Brad in your prepared remarks talking Ken you said valuations in the market are improving and that's one of the factors driving activity.

But then.

Explanation for Ltvs going down was you are marking down the enterprise value for some of your portfolio companies. So can you give us a little bit more granularity on that is.

Is it trimming multiples modestly broadly across the portfolio for your enterprise value assessment, so or more concentrated in some large or assets, where there's a big a negative adjustments.

Yes, I don't want to get into too technical of an answer.

On on this point.

But I'll give you an example, and hopefully that is helpful.

If a company.

Does an add on financing where they had previously.

And equity position, let's just say that was a 1 billion and $5.

That company May have.

Improved in value.

And.

And we may have financed it with the acquisition with debt. So it may look like the LTV has gone up.

But in fact is reflecting the original purchase price.

Of the sponsor so there is a lot of puts and takes on the LTV Robert.

I would I would tell you.

It's not.

It's as we look at it it's not a story, it's not an event.

That concerns us just given the subordination that remains low our depositions.

Got it got it thank you.

Sort of follow up.

On spreads.

In your opening remarks, Pat you did said, yes spreads are still attractive relative to other fixed income market. So I agree with that.

But the down everywhere and private credit as persistent Lee maintained the premium over the syndicated loan market call. It 150 plus basis points do you think there's risk to that 150.

As we go forward given the amount of capital in the amount of competition.

I definitely do not think there is risk to that premium.

If you take a step back and think about what private credit.

Delivering four companies.

And the bank model.

You approach a bank.

Bank Underwrites alone.

Those are the rating agencies go through a long distribution process.

And eventually prices that debt in the public markets and charge a fee for that usually that fee is somewhere between two and a half basis to 150 basis points to 300 basis points depending on the.

All the other ancillary expenses.

And you compare that to private credit.

I'm going to the same company and saying work with Blackstone directly we can give you a $1 billion loan you don't need to go through that distribution process by the way. We can give you a little bit more of a tailored solution for you.

And.

That is the value of what private credit brings to the market. It's the disintermediation of the bank distributed model and those value for that is value for the company and those value for investors and so I strongly believe that that premium will be maintained and at some point.

We'll actually even be wider.

Got it thank you.

I hate to ask what more can you give us the estimated spillover currently to support the dividend.

Yes.

89.

Got it thank you.

Thank you we'll take our next question from Melissa Wedel with JP Morgan.

Good morning, Thanks for taking my questions today.

It definitely noticed the resilience and.

Interest income this quarter.

Firstly, given the pick up quarter over quarter and was wondering if there was anything one timer outsize showing up in impacting the <unk> revenue number.

Yes, Thanks, Melissa I think as you look at our interest income profile overall, what you see is quite a bit of recurring nature right. We have as I mentioned, 91% excluding.

91% of interest income excludes X and onetime fees, we did have a little bit of repayment activity the impact of that was maybe three.

So I think overall if you go back to our policy from an accounting perspective, right, all OID and upfront fees.

Are amortized over the life and so that leaves the more stability or we believe leads to more stability over a long period of time.

Okay that helps thank you and it sounds like with the pick up in M&A activity in deal volumes.

Seeing some attractive opportunities I'm curious how the opportunity set here in the U S. Now that it is sort of re accelerating how does that compare to what you are seeing outside of the U S, which I know is a small exposure in the portfolio.

Yeah, I would say.

Europe as being the primary.

Market, that's most developed outside of the U S.

Probably six terms that are a little bit wider to what youre seeing in the U S. The market's just not as developed capital markets aren't as steep.

There's not as many competitors and so as that market starts to reaccelerate as well.

There is a slightly better backdrop in Europe.

Then the U S. Both are attractive clearly, but you see about a $25 50 basis point spread premium.

In Europe.

And then Asia, its a little bit of a <unk>.

That's still developing for the most part and probably not a great comp.

Thank you.

Thank you, we'll take our last question from Erin <unk> with.

Tourist securities.

Thank you.

I just wanted to talk a little bit about the <unk>.

Commentary of investment activity picking up because of cost of capital coming down and macro getting better.

The macro still seems kind of a squishy.

Part of the reason that rates may be coming down.

There is a little bit of macro uncertainty along with the slowing inflation.

What.

I guess what are your what's your experience in the past in areas like this where you have the cost of capital coming down but.

Macros still has some uncertainty.

Yes, let me just comment broadly.

On the economy.

Because you are correct, we did highlight that it feels like the economy. The backdrop is good corporate balance sheets are.

Good earnings as we see them reported publicly are strong we're seeing that.

And our portfolio is well I think we mentioned 9% earnings growth.

There are pockets of weakness most certainly and you see that in the cyclical you see that in smaller companies.

See that in companies that are exposed to the lower end of the consumer.

Try call is a good example of that.

And then you see some businesses that are more impacted by AI. So it's not without.

Challenges.

So it really depends on where you are invested.

But importantly, as you think about rates rates are primarily looking at inflation and inflation.

Is coming down the labor markets are fooling shelter.

Costs are lower and that's really what the fed is focused on when they are setting their interest rate policy.

Got it alright, thank you.

Thank you with no additional questions in queue I'd like to turn the call back over to Stacy Wang for any additional or closing remarks.

Thank you and thanks, everyone for your participation in our call. This morning, we look forward to speaking to you next quarter. Thanks again.

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